The China Dilemma

In the past few weeks, there’s been a flurry of updates with regards to the regulatory approval of mobile games in China. First, SAPPRFT (the agency formerly known as SARFT… the lengthened acronym reflects its growth in scope) mandated that from July 1 all mobile games must be pre-approved. Rumored details of the approval process (link in Chinese) quickly conjured farcical images of everything wrong with bureaucracy: developers were supposedly required to mail in 2 smartphones (with activated numbers and data-plans) and 5 DVD copies of the game package…

More recently, another agency with growing clout (CAC, which has a say in all things Internet related, and whose former head whom Mark Zuckerberg famously hosted at Facebook HQ a couple of years ago) issued a broad set of requirements on mobile apps with regards to user data.

Collectively, these new developments fit the macro trend of regulatory tightening in China during the past few years. For domestic developers, they represent an ever-growing cost of doing business at home, and there are already predictions that the pre-approval rule will wipe out a large swath of indie and mid-sized developers. For international developers, they represent the closing of the app store loophole in China: while in theory all games published in China have always required government approval in addition to a domestic publisher, Apple’s App Store ecosystem famously were operating outside this rule. This has enabled western developers like Supercell to effectively tap the China market without conceding publishing rights. Now it seems this is finally being reined in.¹

Taking a step back, and coming to the main topic of this post: China has become one of the most important and hardest strategy questions for any game company, thanks to the juxtaposition of the biggest market globally and an increasingly challenging business & regulatory environment. Hence, the dilemma.

There are useful parallels to be drawn between games and other industries. Hollywood, for example, has been grappling with the same question, with even harsher regulatory restrictions (a strict quota of the number of foreign films that can be shown in Chinese cinemas per year, and seasonal blackouts where the box office is reserved for domestic films). Faced with a stagnating US box office in contrast to the tremendous growth in China, Hollywood has resorted to a mix of co-production and content pandering to get around the quotas and SAPPRFT.² For film-goers, some of these pandering efforts definitely leave a sour taste (and often a WTF reaction), but in terms of strategy there are clearly no ambiguities in Hollywood’s direction and execution.

Back to video-games: in contrast, foreign developers / publishers (the EAs / Activisions / Nintendos of the world) have had the luxury of ignoring China (despite its growing market size), partly because of the complete lack of presence of the console market, and heavy pirating on the PC side. For traditional AAA boxed titles, this has meant that pragmatically China was often not worth the hassle, and one could argue it was better for IP holders that Chinese fans played the pirated original version rather than a version contorted to pass local censors. With the double whammy of the rise of “games as a service” (which has always been the China market’s bread and butter) and mobile gaming, however, these foreign developers are having to have a serious thought on their China strategy.

Without trying to be overly prescriptive – and there are no easy answers – I think the following would be a rough thought process for a developer to navigate the problem:

1. Reflect deeply on the values of the company and the kind of games you are passionate about creating, and assess if it’s compatible at all with the censors. You would not be in a happy place if regulatory compliance requires challenging your core values, halfway through the process – decide if you are “in” or “out” upfront. For example, if you are all about freely exploring mature themes (and that is the brand you are known for), then it’s highly possible you will never get past the censors, and thus you shouldn’t worry about the market (until a change in the regulatory climate). Many Rockstar games, for example, would probably never pass this test; similarly, many war simulation games (especially those set in World War II) may also have issues with historical sensitivities.
2. If you do think censors won’t be a big problem (and the big question is what you do in the gray area, such as a game like Diablo 3), consider next how well your business model and platform fits in China. From a market perspective, there is very little space outside of PC/mobile free-to-play, which makes things simple in a way. This doesn’t mean traditional AAA upfront purchase can’t work – Overwatch being a good recent example – but it would be a tougher sell. Offering a try-before-you-buy would probably be a good idea (e.g. Diablo 3 in China, you can play the first 4 Acts for free, the purchase decision happens when you want to play the Reaper of Souls content).
3. You’ll notice I haven’t mentioned tweaking gameplay (except for the censorship point) – in general I would strongly advise against tailoring gameplay to any particular market. What is fun is fun. Tinkering with game design for a specific market more often than not can lead to strong player backlash, because the hardcore players are savvy and passionate, and there is ample exchange of information between players of different markets.³
4. Identify a Chinese publisher that you can have the best alignment with, since by law you are required to have a local partner, and this is a marriage you will have to put up with. There are sharp differences in how the major Chinese publishers work and what they are good at. At work, I’ve interviewed lots of people in various Chinese publishers and their western developer counter-parts. While there are some common themes (“The developer doesn’t understand China!” “The publisher’s requests make no sense!”), it is fascinating how different the dev – publisher setup can be, down to the minute details (e.g. is it the developers’ engineers or the publishers’ engineers that maintains/updates the servers) that could make a huge difference in what the player experiences. The publishing negotiations are going to be tough, but be really deliberate here, since it’s a decision you will live with for a long time.
5. If you are “in”, act like you are all in. Your Chinese publisher is going to offer a ton of suggestions and requests, half of which are nonsense and half of which can take your game to the next level in China. You need to have the team that can thoughtfully assess the input (and distinguish the bullshit from the diamonds in the rough), and the development prioritization in place to actually address them. An easy way to see if you are doing well or not – is China your #1 or #2 market?